Long-struggling Daytona Hilton shows promising signs that could help area tourism

Published: Saturday, May 10, 2014 at 10:49 p.m.

Last Modified: Saturday, May 10, 2014 at 10:58 p.m.

DAYTONA BEACH

For all the optimism over new hotels, renovations and national convention business, Daytona Beach's tourism tide still largely rises and falls with the fortunes of its largest hotel, the Hilton Daytona Beach Oceanfront Resort.

The Hilton's influence runs deep in area tourism, from daily room rates to investor decisions on future hotels, industry watchers say. The 744-room resort carries the baggage of a rocky past — ownership changes, mortgage defaults — and an uncertain present. But as with the rest of the beachside, recent events suggest a brighter future for the Hilton.

Income has increased in recent years after the Great Recession of 2007-09 pummeled the hotel, and management is in talks with the Hilton chain to get the OK for the hotel's first major renovations in a decade.

Local leaders say the hotel at 100 N. Atlantic Ave. is still under-performing given its size and prime location on the oceanfront, but the changes are welcome and a fresh look would help the Hilton — and by extension, other hotels in the area — command the kind of daily room rental rates it should.

“The property with renovations would be worth quite a lot,” said Volusia County Councilman Doug Daniels, an attorney with a long track record on beachside projects. “It would be a terrific property.”

Those needed updates haven't happened yet, though, and the hotel continues to grind along for the time being.

Bolstering the feeling that the Hilton should be doing better is the most recent appraisal of the hotel by LNR Property, the special servicer that took the Hilton last year in a deed-in-lieu of foreclosure. The Hilton in December had an appraised value of $50.8 million, down $14.7 million from the $65.5 million appraisal conducted in January of last year, according to data obtained through Trepp, an information company that tracks commercial real estate and the banking industry. The property was appraised at $54 million in January 2012, according to Trepp.

The December figure is lower than longtime industry watcher Bob Davis expected.

“It's the No. 1 hotel that basically gets all the business from (the Ocean Center convention center across the street),” said Davis, who heads the Hotel & Lodging Association of Volusia County. “That's a very cheap price. It's a prime location with a huge oceanfront and no (beach) driving. It has a spa, a huge swimming pool deck, banquet facilities — it's incredible.”

A spokeswoman for LNR declined comment to The News-Journal.

'TOO MUCH SUPPLY'

At 744 rooms, the Hilton is by far the area's largest hotel. The property sports seven restaurants and lounges, pool decks, stores — including a FedEx store that opened in January — and 60,000 square feet of indoor and outdoor meeting space. All of that should be a major asset to Daytona Beach, but when the Hilton struggles to fill its many rooms and massive halls with guests, other hotels feel it, said Manoj Bhoola, president of Elite Hospitality, an Ormond Beach company that manages four hotels in the Daytona Beach area.

“Because they cannot fill their rooms, they compensate in rate integrity,” Bhoola said. “When we have to lower our rates (to compete), then we can't put the money we would have had to upgrade the properties.”

Jason Reader, vice president of operations for Pyramid Hotel Group, the Boston company that manages the Hilton, countered that the Hilton doesn't undercut other properties. He added that room rental rates in Daytona Beach have been on the rise.

The Hilton's occupancy rate stood in the low 60-percent range in 2011 and 2012, according to data from Trepp. That's slightly higher than the Daytona Beach area generally, where the overall occupancy rate was in the mid-50-percent range over the same period, according to Daytona Beach research firm Mid-Florida Marketing & Research Inc.

However, that still leaves many rooms at the Hilton unfilled, Bhoola said.

“Unfortunately, it's just too much supply in the stretch of beach ... that doesn't have a plethora of other activities and nightlife and restaurants,” Bhoola said. “We have a few new (attractions), which is good, but we're far from a West Palm Beach that actually has the demand for the supply of rooms we have.”

Bhoola believes the Hilton's struggles over the decades stem largely from being too much hotel for the area.

The Hilton opened as the Daytona Beach Marriott in 1989. At the time, the city saw the hotel as a way to clean up the seedy beachside, and it backed its development with taxpayer dollars. Over the years, the city would put close to $15 million into the property's construction and expansion.

The Marriott's troubles started almost immediately. By 1994, the hotel's owner had defaulted on its mortgage, and the hotel was re-branded as an Adam's Mark shortly thereafter.

In 2002, the Adam's Mark completed a $52 million expansion that added 310 new guest rooms. Morgan Stanley Real Estate bought it for about $54 million in 2004 and Boston-based Pyramid Hotel Group was brought in to manage it. Pyramid closed the hotel in 2004 to repair hurricane damage. It reopened the property in 2005 as the Hilton Daytona Beach Oceanfront Resort.

In 2007, General Electric Assets bought the hotel for $142 million and owned the property until last year, when it transferred control of the Hilton to U.S. Bank in a consensual foreclosure. LNR entered into a three-year agreement to be the property's special servicer around that time.

The Hilton still has around $88 million in outstanding debt, according to Trepp.

'CAUGHT IN THE DOWNTURN'

The Hilton's most-recent appraised value is way down from a 2007 appraisal that pegged the hotel's worth at $150 million, though observers doubt that appraisal's validity.

“$50.8 million is probably a realistic appraisal with the rate of return people are looking for these days,” Daniels said. “The Hilton, too, has been hurt in the downturn. They're like any homeowner that was caught in the downturn.”

The hotel's appraised value has little effect on the day-to-day lives of Daytona Beach residents, observers say. The hotel will stay open, and tourists will continue to stay there.

But it does send a signal to hotel developers, said Bob Sonnenblick, chairman of Los Angeles-based real estate development firm Sonnenblick Development.

“If you see an established hotel like the Hilton is only worth ($68,000) per room and it will cost you $200,000 per room to build a new hotel, you will look at that and think, 'It makes no sense to build any new hotels in this market,'” he said.

Buying shuttered or under-performing hotels and renovating them would be more attractive to developers than building new because the costs are much lower, Sonnenblick added.

Still, the appraisal hasn't turned off one developer who's looking to build a brand-new hotel on the beachside.

Bayshore Capital Chairman Henry Wolfond, whose company has plans to build a two-tower Hard Rock Hotel and condominium complex south of Sun Splash Park, said he would need to examine the appraisal more closely to render an opinion of it. Still, he said construction projects throughout the area — including the widening of Interstate 4, the planned One Daytona retail-and-dining neighborhood, a $400 million renovation of Daytona International Speedway and a proposed distribution center for the Trader Joe's grocery store chain — have him bullish on Daytona Beach generally.

“Hard Rock is a game-changer for the market,” he said. “It's not just another Hilton or Marriott, and I think it resonates with a lot of folks.”

Some hotel companies have bought under-performing or closed properties in recent years with plans to renovate and reopen them. Among them is Summit Hospitality Group, a Daytona Beach company that operates renovated Holiday Inn and Hampton Inn hotels on the beachside. Last year, the company bought the beleaguered Desert Inn, once ranked one of the dirtiest hotels in the country by travel website TripAdvisor, with plans to renovate and re-brand the property.

Another local company, Premier Resorts & Management, is converting the former Bermuda House on Atlantic Avenue to a Hilton Garden Inn.

Additionally, an investment group new to the hospitality industry recently purchased the Streamline Hotel on the west side of Atlantic Avenue and intends to renovate it.

In fact, observers say one piece of low-hanging fruit ripe for redevelopment is the Hilton itself.

FACELIFT WOULD HELP RATES

Though the hotel has recently put some money into its wireless network and other amenities, the property hasn't undergone a major renovation since it switched from an Adam's Mark hotel to a Hilton in 2005, said Reader.

Hotels usually conduct major renovations every six to seven years, so the Hilton is overdue, Reader said. The Hilton was one of many hotels that put off capital improvements during the recession, he added.

Local observers say the property needs $20 to $30 million in work. If that were to happen, the Hilton would be able to command higher room rental rates, which would help not only the property but the area in general.

“It would mean much to get our signature hotel — our centerpiece hotel — to a higher (average daily room rental rate),” Daniels said. “It would make the construction of new high-quality hotels possible. (Area room rates) need to improve, and the absolute starting place would be for someone to buy the Hilton.”

Daniels and lodging association head Davis both said they'd like to see a company buy the Hilton and fix it up.

Even without a sale, a face-lift could be on the way, Reader said. Pyramid is seeking approval from Hilton Worldwide, which owns Hilton and other hotel brands, to renovate the hotel's guest rooms and common areas — a project Reader estimates could cost the hotel around $8 million. Subsequent upgrades over the next few years could push costs into the $20 million range, Reader added.

The hotel has set up a model room that offers a preview of the kinds of changes that could be in store, including new carpeting, new bedding, a granite-topped armoire and repainted walls. Additionally, the hotel is looking into cleaning and repairing the hotel's exterior, which is, in places, covered in what looks like mold. The hotel hired a structural engineer to inspect the building, and Reader estimates that cleaning and repairing the Hilton's exterior will run about $400,000.

There are other signs of hope for the hotel. The Hilton's net operating income — its income after expenses are taken out but before it makes mortgage payments — rose coming out of the Great Recession of 2007-09, according to Trepp.

The Hilton's net operating income stood at roughly $6.4 million for April 2011 to March 2012. For all of 2011 it was about $6 million, just shy of being enough to cover payments on the property's debt, according to Trepp.

Reader said the hotel's income has continued to rise and that 2013 was the hotel's best year on record, but he wouldn't give exact figures.

“It seems to be doing reasonably well now,” Daniels said of the Hilton. “There are a lot of people there every time I'm there.”

EDITOR'S NOTE: An earlier version of this story incorrectly stated the amount refurbishing the Hilton's exterior is expected to cost.

<p><span class="Dateline">DAYTONA BEACH </span></p><p>For all the optimism over new hotels, renovations and national convention business, Daytona Beach's tourism tide still largely rises and falls with the fortunes of its largest hotel, the Hilton Daytona Beach Oceanfront Resort.</p><p>The Hilton's influence runs deep in area tourism, from daily room rates to investor decisions on future hotels, industry watchers say. The 744-room resort carries the baggage of a rocky past — ownership changes, mortgage defaults — and an uncertain present. But as with the rest of the beachside, recent events suggest a brighter future for the Hilton. </p><p>Income has increased in recent years after the Great Recession of 2007-09 pummeled the hotel, and management is in talks with the Hilton chain to get the OK for the hotel's first major renovations in a decade. </p><p>Local leaders say the hotel at 100 N. Atlantic Ave. is still under-performing given its size and prime location on the oceanfront, but the changes are welcome and a fresh look would help the Hilton — and by extension, other hotels in the area — command the kind of daily room rental rates it should.</p><p>“The property with renovations would be worth quite a lot,” said Volusia County Councilman Doug Daniels, an attorney with a long track record on beachside projects. “It would be a terrific property.” </p><p>Those needed updates haven't happened yet, though, and the hotel continues to grind along for the time being.</p><p>Bolstering the feeling that the Hilton should be doing better is the most recent appraisal of the hotel by LNR Property, the special servicer that took the Hilton last year in a deed-in-lieu of foreclosure. The Hilton in December had an appraised value of $50.8 million, down $14.7 million from the $65.5 million appraisal conducted in January of last year, according to data obtained through Trepp, an information company that tracks commercial real estate and the banking industry. The property was appraised at $54 million in January 2012, according to Trepp.</p><p>The December figure is lower than longtime industry watcher Bob Davis expected.</p><p>“It's the No. 1 hotel that basically gets all the business from (the Ocean Center convention center across the street),” said Davis, who heads the Hotel &amp; Lodging Association of Volusia County. “That's a very cheap price. It's a prime location with a huge oceanfront and no (beach) driving. It has a spa, a huge swimming pool deck, banquet facilities — it's incredible.”</p><p>A spokeswoman for LNR declined comment to The News-Journal.</p><h3>'TOO MUCH SUPPLY'</h3>
<p>At 744 rooms, the Hilton is by far the area's largest hotel. The property sports seven restaurants and lounges, pool decks, stores — including a FedEx store that opened in January — and 60,000 square feet of indoor and outdoor meeting space. All of that should be a major asset to Daytona Beach, but when the Hilton struggles to fill its many rooms and massive halls with guests, other hotels feel it, said Manoj Bhoola, president of Elite Hospitality, an Ormond Beach company that manages four hotels in the Daytona Beach area.</p><p>“Because they cannot fill their rooms, they compensate in rate integrity,” Bhoola said. “When we have to lower our rates (to compete), then we can't put the money we would have had to upgrade the properties.”</p><p>Jason Reader, vice president of operations for Pyramid Hotel Group, the Boston company that manages the Hilton, countered that the Hilton doesn't undercut other properties. He added that room rental rates in Daytona Beach have been on the rise.</p><p>The Hilton's occupancy rate stood in the low 60-percent range in 2011 and 2012, according to data from Trepp. That's slightly higher than the Daytona Beach area generally, where the overall occupancy rate was in the mid-50-percent range over the same period, according to Daytona Beach research firm Mid-Florida Marketing &amp; Research Inc. </p><p>However, that still leaves many rooms at the Hilton unfilled, Bhoola said.</p><p>“Unfortunately, it's just too much supply in the stretch of beach ... that doesn't have a plethora of other activities and nightlife and restaurants,” Bhoola said. “We have a few new (attractions), which is good, but we're far from a West Palm Beach that actually has the demand for the supply of rooms we have.”</p><p>Bhoola believes the Hilton's struggles over the decades stem largely from being too much hotel for the area.</p><p>The Hilton opened as the Daytona Beach Marriott in 1989. At the time, the city saw the hotel as a way to clean up the seedy beachside, and it backed its development with taxpayer dollars. Over the years, the city would put close to $15 million into the property's construction and expansion.</p><p>The Marriott's troubles started almost immediately. By 1994, the hotel's owner had defaulted on its mortgage, and the hotel was re-branded as an Adam's Mark shortly thereafter.</p><p>In 2002, the Adam's Mark completed a $52 million expansion that added 310 new guest rooms. Morgan Stanley Real Estate bought it for about $54 million in 2004 and Boston-based Pyramid Hotel Group was brought in to manage it. Pyramid closed the hotel in 2004 to repair hurricane damage. It reopened the property in 2005 as the Hilton Daytona Beach Oceanfront Resort.</p><p>In 2007, General Electric Assets bought the hotel for $142 million and owned the property until last year, when it transferred control of the Hilton to U.S. Bank in a consensual foreclosure. LNR entered into a three-year agreement to be the property's special servicer around that time.</p><p>The Hilton still has around $88 million in outstanding debt, according to Trepp.</p><h3>'CAUGHT IN THE DOWNTURN'</h3>
<p>The Hilton's most-recent appraised value is way down from a 2007 appraisal that pegged the hotel's worth at $150 million, though observers doubt that appraisal's validity.</p><p>“$50.8 million is probably a realistic appraisal with the rate of return people are looking for these days,” Daniels said. “The Hilton, too, has been hurt in the downturn. They're like any homeowner that was caught in the downturn.”</p><p>The hotel's appraised value has little effect on the day-to-day lives of Daytona Beach residents, observers say. The hotel will stay open, and tourists will continue to stay there.</p><p>But it does send a signal to hotel developers, said Bob Sonnenblick, chairman of Los Angeles-based real estate development firm Sonnenblick Development.</p><p>“If you see an established hotel like the Hilton is only worth ($68,000) per room and it will cost you $200,000 per room to build a new hotel, you will look at that and think, 'It makes no sense to build any new hotels in this market,'” he said.</p><p>Buying shuttered or under-performing hotels and renovating them would be more attractive to developers than building new because the costs are much lower, Sonnenblick added.</p><p>Still, the appraisal hasn't turned off one developer who's looking to build a brand-new hotel on the beachside.</p><p>Bayshore Capital Chairman Henry Wolfond, whose company has plans to build a two-tower Hard Rock Hotel and condominium complex south of Sun Splash Park, said he would need to examine the appraisal more closely to render an opinion of it. Still, he said construction projects throughout the area — including the widening of Interstate 4, the planned One Daytona retail-and-dining neighborhood, a $400 million renovation of Daytona International Speedway and a proposed distribution center for the Trader Joe's grocery store chain — have him bullish on Daytona Beach generally.</p><p>“Hard Rock is a game-changer for the market,” he said. “It's not just another Hilton or Marriott, and I think it resonates with a lot of folks.”</p><p>Some hotel companies have bought under-performing or closed properties in recent years with plans to renovate and reopen them. Among them is Summit Hospitality Group, a Daytona Beach company that operates renovated Holiday Inn and Hampton Inn hotels on the beachside. Last year, the company bought the beleaguered Desert Inn, once ranked one of the dirtiest hotels in the country by travel website TripAdvisor, with plans to renovate and re-brand the property. </p><p>Another local company, Premier Resorts &amp; Management, is converting the former Bermuda House on Atlantic Avenue to a Hilton Garden Inn.</p><p>Additionally, an investment group new to the hospitality industry recently purchased the Streamline Hotel on the west side of Atlantic Avenue and intends to renovate it.</p><p>In fact, observers say one piece of low-hanging fruit ripe for redevelopment is the Hilton itself.</p><h3>FACELIFT WOULD HELP RATES</h3>
<p>Though the hotel has recently put some money into its wireless network and other amenities, the property hasn't undergone a major renovation since it switched from an Adam's Mark hotel to a Hilton in 2005, said Reader.</p><p>Hotels usually conduct major renovations every six to seven years, so the Hilton is overdue, Reader said. The Hilton was one of many hotels that put off capital improvements during the recession, he added.</p><p>Local observers say the property needs $20 to $30 million in work. If that were to happen, the Hilton would be able to command higher room rental rates, which would help not only the property but the area in general.</p><p>“It would mean much to get our signature hotel — our centerpiece hotel — to a higher (average daily room rental rate),” Daniels said. “It would make the construction of new high-quality hotels possible. (Area room rates) need to improve, and the absolute starting place would be for someone to buy the Hilton.”</p><p>Daniels and lodging association head Davis both said they'd like to see a company buy the Hilton and fix it up.</p><p>Even without a sale, a face-lift could be on the way, Reader said. Pyramid is seeking approval from Hilton Worldwide, which owns Hilton and other hotel brands, to renovate the hotel's guest rooms and common areas — a project Reader estimates could cost the hotel around $8 million. Subsequent upgrades over the next few years could push costs into the $20 million range, Reader added.</p><p>The hotel has set up a model room that offers a preview of the kinds of changes that could be in store, including new carpeting, new bedding, a granite-topped armoire and repainted walls. Additionally, the hotel is looking into cleaning and repairing the hotel's exterior, which is, in places, covered in what looks like mold. The hotel hired a structural engineer to inspect the building, and Reader estimates that cleaning and repairing the Hilton's exterior will run about $400,000.</p><p>There are other signs of hope for the hotel. The Hilton's net operating income — its income after expenses are taken out but before it makes mortgage payments — rose coming out of the Great Recession of 2007-09, according to Trepp.</p><p>The Hilton's net operating income stood at roughly $6.4 million for April 2011 to March 2012. For all of 2011 it was about $6 million, just shy of being enough to cover payments on the property's debt, according to Trepp.</p><p>Reader said the hotel's income has continued to rise and that 2013 was the hotel's best year on record, but he wouldn't give exact figures.</p><p>“It seems to be doing reasonably well now,” Daniels said of the Hilton. “There are a lot of people there every time I'm there.”</p><p>EDITOR'S NOTE: An earlier version of this story incorrectly stated the amount refurbishing the Hilton's exterior is expected to cost.</p><br>